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With trade wars and conflicts, fabled China economy at risk

Chinese President Xi Jinping has been forced to acknowledge that his country’s economic growth is facing a rising external risk and the export-driven model that established China as the factory for the world has run into rough weather.

Addressing a meeting on China’s five-year development plan for 2021-2025 on Saturday, Xi put great emphasis on his “dual circulation” strategy to cut the country’s dependence on overseas markets and technology amidst a widening rift with the United States, Europe and Japan.

“China has strong manufacturing capacity, very large domestic markets and huge investment potentials,” the official Xinhua news agency quoted Xi as saying in a report from Beijing.

Xi put up a brave face saying “China’s economy remains resilient and there are ample policy tools at Beijing’s disposal to ensure growth as globalization slows and unilateralism and protectionism are rising. We must seek our development in a more unstable and uncertain world.”

However, what Xi did not say is that his own policies have ended up killing the geese that laid the golden eggs for China. He is now seen at the world stage as a leader who cannot be trusted. After having used technology and investments from the advanced Western countries to establish the biggest supply chain for manufacturing goods in the world and then exploiting their markets to rake in huge profits, China has literally stabbed them in the back.

The Xi regime’s concealing of facts related to the deadly coronavirus scourge triggered from the meat market in Wuhan and the intimidatory display of naval and air power in the South China Sea along with the military build-up on the Indian border have made the world wary of China. The brazen violation of human rights in Hong Kong and China’s southern province of Xinjiang has further alienated the country.

Sales of goods in overseas markets have helped China to emerge as the fastest growing economy in the world with huge balance of trade surpluses vis-à-vis its leading trade partners such as America and Europe. The trade with India too has been one-sided as cheap Chinese goods have been flooding the market often at the cost of domestic industry. However, with these markets now likely to dry up, China now faces an uphill task to achieve its goal of becoming a high-income nation comparable to the western countries and Japan.

Under the “dual circulation” strategy, Xi aims to boost technological  innovation and push Chinese firms up the global value chain so that they create more jobs and incomes within the country to generate a higher domestic demand for goods and services that will also raise the standard of living of its vast population.

Xi Jinping’s “internal circulation” strategy aims to depend on domestic production and consumption for its development. But at the same time Xi also says “internal circulation” will be supported by “external circulation” which in other words means that he wants to have the cake and eat it too. Chinese leaders still favor greater market opening to attract more foreign investment in high-end manufacturing and prevent the exodus of multinational companies from China.

But analysts think matters have gone too far and with the US decoupling from the Chinese economy, other countries have stepped up their plans to scale down economic engagement with the dragon. Japan, for instance, has started offering subsidies to its companies to shift their production lines out of China.

The Trump administration has blacklisted more than 275 China-based companies which include telecom equipment giants Huawei and ZTE and drone producer DJI. Surveillance camera maker Hikvision has been put on the banned list over suppression of China's Uighur minority which lives in the Xinjiang province. Similarly, Trump signed an executive order on August 14 giving ByteDance 90 days to sell popular short video app TikTok which has access to personal data of millions of US citizens. Some construction companies have also been put on the sanctions list for helping China’s military build-up on disputed islands in the South China Sea.

The Trump administration has moved in a big way to prevent most US companies from conducting business with Huawei, saying the world’s biggest maker of mobile telecommunications equipment and smartphones posed a security risk as it ultimately functioned under the control of an authoritarian Chinese government. The company has been barred from participating in the roll out of 5G operations of advanced countries which has come as a major setback for its expansion plans. Last month, restrictions were tightened further to stop Huawei’s access to commercially available chips from US companies. This is bound to cripple its capacity to produce high-end smartphones, giving rivals such as South Korean electronics giant Samsung and leading US phonemaker Apple a big advantage..